Why Is Car Insurance So Expensive In California?

California is known for being one of the most expensive states, with a high cost of living. Just like everything else, auto insurance is also expensive in California. Many drivers in California are feeling the strain as insurance premiums rise due to factors like inflation, heavy traffic, accidents, and crime.

The high cost of insurance can be difficult to fully understand, as it is influenced by many different factors. However, with over 20 years of experience in the insurance industry, I can offer some helpful insights. Keep reading to learn more about why car insurance is so expensive in California.

Unique Reasons Why Car Insurance In California Is So High

The cost of California car insurance can be attributed to the following reasons as noted below.

More Drivers On The Road

In California, more people are driving, and the state has the most licensed drivers in the U.S. This increase in drivers has led to a rise in accidents, claims, and payouts.

Uninsured Drivers

Many people in California are also driving without insurance. As car insurance costs rise, more drivers are taking the risk of driving uninsured. In 2022, approximately 17% of California drivers were uninsured. The cost of uninsured drivers is passed on to others through higher premiums.

Expensive Car Repairs

Car repairs in California are also expensive. With one of the highest repair costs in the country, insurance companies factor these higher costs into premiums. This means your insurance rates could be higher, and you might also face higher out-of-pocket costs for repairs beyond your liability coverage.

Severe Weather Events

California is experiencing more extreme weather, including wildfires, droughts, and floods. The recent California wildfires are an example. These events lead to more claims, which are often costly and unpredictable. As a result, insurance companies are raising rates to keep up with the increased risk.

Minimum Wage

While California’s minimum wage is higher than the federal minimum wage, it still doesn’t cover the high cost of living. People with lower incomes may end up paying more for auto insurance compared to those with higher incomes.

Healthcare Costs Are Rising

Healthcare costs in California are rising. Car insurance companies are particularly affected when they have to cover medical bills, and it’s becoming more expensive. For the past 20 years, Californians’ spending on healthcare has increased by around 5.4% annually.

Recently, the Office of Health Care Affordability’s Board voted to implement a cap on healthcare cost increases in California, aiming to reduce rising costs and make essential care more affordable. The 3% cap will be gradually introduced over five years, beginning at 3.5% in 2025, to minimize disruptions and ensure full compliance.

Population Density

California has a population of 38.8 million people, the most populated cities being Los Angeles and San Diego. Car insurance rates are usually higher in areas with a lot of people because the chances of vandalism, theft, and damage are greater.

Factors Causing Your Car Insurance To Be So High

Several factors can affect the cost of your car insurance. Below are some of the key ones that can impact your premium:

Type Of Coverage

The level of coverage you choose plays a big role in the cost of your policy. Full-coverage insurance can be twice as expensive as more basic coverage. Additional add-ons, such as new car replacement or roadside assistance, will also increase the price.

Location

Where you live is a major factor in determining your car insurance rates. Densely populated areas tend to have higher rates due to the increased risk of theft, vandalism, and accidents. Areas with higher crime rates or specific environmental risks, like coastal regions prone to flooding or inland areas at risk for wildfires and earthquakes, will also see higher premiums.

Credit Score

Your credit score can impact more than just loan approvals, it also affects your car insurance premium. People with lower credit scores are statistically more likely to file claims, so insurance companies often charge higher rates to those with poor credit.

Driving History

Drivers with clean records and no at-fault accidents typically pay the lowest rates. An at-fault accident usually results in a higher premium, and serious violations like a DUI can lead to significant rate increases.

Marital Status

Many insurers offer lower rates to married drivers compared to single, separated, widowed, or divorced drivers.

Age

Age is a major factor, particularly for young drivers. Insurance companies view teen drivers as high-risk, as they tend to have more accidents and engage in riskier driving behavior compared to older drivers.

California’s Low Cost Automobile Insurance Program

This program is designed to provide affordable car insurance for low-income drivers who meet specific eligibility requirements. The program, which is administered by the California Department of Insurance, aims to make car insurance more accessible to residents who may otherwise struggle to afford coverage.

To qualify, applicants must meet certain income and vehicle requirements, including owning a vehicle that is not worth more than a specified amount. The program offers basic coverage, including liability insurance, which covers damages to other people and property if you’re at fault in an accident.